HOW TO CONTRUCT A SQUARE OF NINE
ROADMAP CHART IN EXCEL
This tutorial will show you how to construct a Square of Nine
Roadmap Chart from a regular price chart created in Excel You could also
use a chart printed out from Yahoo or Big Charts or any other online service or
charting program. This example
uses Hourly Data (65 minutes actually) of the S&P 500. Hourly charts
are good to practice with because conditions change quickly and you get many opportunities to experiment. We will assume that
you already know how to create a stock chart in Excel. This is what the plainjane
stock chart looks like. We used highlowclose bars but if the chart doesn't get too
crowded candles also work nicely.
When you scroll around on your Excel chart
while working in the program itself, the value of the data point under the mouse cursor will appear in a little window.
In this case we want to start the Roadmap from the low at 1166.31, which
occurred on January 28, 2005 at the 11:40 bar.
From the Square Root Theory you learned that we can move
360 degrees around the Square of Nine by adding 2 to the square root of
a number and squaring the resulting sum. In the example on the Roadmap Theory page we moved from 15
to 34, which is directly above 15 on the Square of Nine, by taking the
square root of 15 (3.87), adding 2 (5.87) and squaring that sum (34.49).
A paper version of the Square of Nine uses rounded numbers and 34.49 was
rounded down to 34. Just so we have some common language to work
with we call the "2" we added to the square root of 15 a Factor of 2. We
understand that Factor is a mathematical term of art, and in that sense
it's being misused, but most people reading this are not mathematicians
and will not be greatly offended.
If a Factor of 2 represents 360 degrees or a full
circle move, then 45 degrees or 1/8 circle will be represented by a
Factor of .25 (360/8 = 45) and (2/8 = .25). Many, if not most, major
stock market moves end on a multiple of 90 degrees. We're working with
Hourly data and because 90 degrees may be too granular we use 45 degrees
which is an exact division of 90 degrees for our Hourly Roadmap Charts.
If you want to work with Daily or Weekly data then we suggest using 90
or 180 degree Factors, which are .5 and 1 respectively, (360/4 = 90 and
2/4 = .5) and (360/2 = 180 and 2/2 = 1). In practice, you can use any
Factor you want and odds are that at least one will fit your trending
data points exactly, even though it would have allowed you to draw the
Roadmap Chart before the fact. Gann said that 90 degrees is very
important for the stock market, and our own experience with the major
stock market indexes confirms that, but there very well could be other
very important factors for different stock market indexes, currencies,
commodities or individual stocks. There is probably much more that
remains unknown and undiscovered about the application of the Square of
Nine than we can imagine, so experimentation is encouraged for those
willing to do the work.
Now that we've decided to use a Factor of .250
(representing 45 degrees) we can
begin to actually construct the chart. We'll use our starting point, the
low at 1166.31, to calculate price levels for the horizontal lines.
Here's the math:
(SQRT(1166.31) + .250) ^2 = 1183.45
(SQRT(1166.31) + .500) ^2 = 1200.71
(SQRT(1166.31) + .750) ^2 = 1218.10
Eyeball these price levels on your Excel chart and
draw in a horizontal line at each price level. The chart will look like
this.
Let's add the vertical time lines. Use the same
low price of 1166.31. Find the square root (34.15) and round it to the
next whole number (34). To complete the vertical time lines all that must be done
is draw the lines in 34 bar increments from the starting point of the
bar at 1166.31. Draw as many vertical time lines as will fit on the
chart. The chart will look like this.
You're almost there. Add one more vertical line
at the starting point price bar at the low of 1166.31 and draw diagonal
lines through the intersections of the horizontal and vertical lines.
The chartinprogress will show you graphically what and where to
connect things better then any verbal description.
That's all there is to it! You've created a Roadmap
Chart. Once you get a feel for the rhythm of the tickers you trade the
most, and the Factor that best represents that rhythm, you can create a
new Roadmap Chart within minutes of a suspected pivot point. The Roadmap
Chart is selfdefining. If the trend has changed then the new Roadmap
Chart will contain the future price bars for the life of the trend. If
the suspected pivot point bombsout you will know immediately when price
bars bust the channels.
One obvious thing we did not mention is that if you're
drawing a new Roadmap from a high then you would subtract, not add, the
Factor from the square root of the starting price. The vertical line,
time calculation, would be the same. Depending on the quote price of
your ticker you may get weird results in your early attempts to create a
new chart. You will have to experiment, but generally, you want to
convert prices into three significant digits (i.e three numbers to the
left of the decimal point) to get proportional results. Use a multiple
of 10 (multiply or divide by 1/10, 10, 100, 1000, etc.) to convert your
prices to three significant digits before calculating the price levels
of the horizontal lines. You do not have to change the price scale of
the chart, only the price to use when calculating the horizontal price
lines. We use natural S&P prices, which currently are four significant
digits, for our charts and everything works just fine so like most
everything else about the Square of Nine there are no absolutes, and the
value you receive is directionally proportional to the effort you make..
We think the Roadmap Chart is a great trading tool
without learning another thing about the Square of Nine. How many tools
allow you to define a trend ahead of time? Ideally, price will move
across the width of the channels before ending the trend. Reactions that
do not end the trend often occur near the midpoint of the time lines or
the midpoint of the major horizontal price lines.
There's no substitute for experience in learning the natural rhythm of
your tickers and how to use the Roadmap Charts to your advantage.
Although the Roadmap Chart is based on Square of Nine principles, and as
elegant as we believe the Roadmap Chart to be, it does not square
price and time. To do that you must first convert both price and time to
degrees of a circle and measure them from defined starting points. The
Roadmap Chart does not do that.
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